Gold prices experienced a decline on Thursday following the Federal Reserve’s announcement that it anticipates higher interest rates to persist for an extended duration. This led investors to sharply revise their expectations for the future price of gold.
Gold futures for December, the most actively traded contract on the New York Comex, registered a 1% decline, equivalent to nearly $20, closing at $1,948.05 per ounce. This decline suggests that traders are factoring in significantly lower gold prices in the forthcoming months, especially in light of the elevated interest rate outlook.
Spot gold had a subdued response to the Federal Reserve’s statement, experiencing a 0.1% drop and settling at $1,928.12 per ounce by 23:50 ET (03:50 GMT).
Other precious metals also witnessed notable losses, with platinum futures declining by 0.6%, while silver saw a significant drop of nearly 2%.
The Federal Reserve’s View: Higher Rates, Fewer Cuts in 2024
As widely expected, the central bank chose to maintain interest rates at their current levels during Wednesday’s meeting.
However, Federal Reserve Chair Jerome Powell issued a cautionary statement, suggesting that recent inflation increases and the resilience of the labor market have given the Fed more leeway to keep interest rates elevated. Powell even raised the possibility of at least one additional rate hike this year.
Powell’s remarks took a notably hawkish stance, contrasting with market expectations. Furthermore, Powell’s projection indicated that U.S. interest rates are likely to hover around 5.1% through 2024.
This forecast diverges significantly from market expectations, as it suggests only two potential rate cuts for the upcoming year, which is notably fewer than the four cuts that markets had been pricing in.
The Federal Reserve also emphasized the resilience of the U.S. economy and downplayed the likelihood of a U.S. recession. This scenario, in turn, diminished safe-haven demand for gold.
The primary weight on gold in the coming months is expected to be the prospect of prolonged high U.S. interest rates, given that rising rates elevate the opportunity cost of investing in non-yielding assets.
Copper Trends Upwards, Despite Weekly Losses
In the realm of industrial metals, copper prices experienced a slight rise after suffering notable losses earlier in the week.
Copper futures increased by 0.2%, reaching $3.7453 per pound, although they remained down by 1.5% for the week.
Copper found some support from indications of the U.S. economy’s resilience, which could sustain industrial activity and copper demand in the forthcoming months.
Additionally, attention was directed towards potential stimulus measures from China, with the People’s Bank of China indicating its readiness to implement further monetary support if necessary.
However, the PBOC decided to keep its loan prime rates unchanged on Wednesday, as it navigates the challenge of balancing economic growth promotion and the prevention of yuan depreciation.
